GEMA Savings Go Beyond $100 Million

TRAVERSE CITY, MI – While officials at Global Engine Mfg. Alliance LLC are crowing about the $100 million in savings realized to date in procurement and other activities, their hopes are for even further savings as the plant prepares to launch production next year. During a presentation at the Management Briefing Seminar here on Monday, GEMA President Bruce Coventry said the overall costs for the

TRAVERSE CITY, MI – While officials at Global Engine Mfg. Alliance LLC are crowing about the $100 million in savings realized to date in procurement and other activities, their hopes are for even further savings as the plant prepares to launch production next year.

During a presentation at the Management Briefing Seminar here on Monday, GEMA President Bruce Coventry said the overall costs for the plant so far are $100 million below that of DaimlerChrysler AG’s Saltillo, Mexico, engine plant. That’s before full production begins. (See related story: Global Engine Saves DC $100 Million)

“That’s our going-in position. Our intent is to go beyond that,” Coventry tells Ward’s in an interview here. “If we can see the same kind of breakthrough performance and improvement in our suppliers that we are trying to achieve, I think the potential is significantly more than that.”

Coventry says working with GEMA’s alliance partners – DC, Hyundai Motor Co. Ltd. and Mitsubishi Motors Corp. – the team was able to achieve scale efficiencies of significant magnitude.

He points to the beginning of the venture, when executives from all three auto makers gathered to discuss component-purchasing initiatives.

“We literally set a piston on a table. System by system, commodity by commodity, we laid our parts on the table and they laid their parts on the table,” he says. “It’s a piston and they look a lot alike. So how come I am paying $2 more for mine than yours?”

Coventry says this line of discussion was enlightening for all the partners as they looked at sourcing on a truly global basis. The results of the analysis were surprising in some cases. He says not all low-cost producers are in Asia or Eastern Europe. Some reside in North America and other parts of the world.

“It was very interesting when we went through this process,” Coventry says. “Because when we started, clearly I think our colleagues at Hyundai had this feeling their suppliers were cheaper than anyone else in the world. And, to be fair, some of them were. But not everyone was.

“We have found that many of our (DC) suppliers were less expensive in Europe. We’re finding Eastern Europe is becoming very active now,” he says.

Coventry says the partners did look closely at parts makers in China because “we did not have enough experience or confidence in the precision-machining components in China.” He says the partners will look to Chinese suppliers in the future.

Open-book pricing was by far the most advantageous initiative taken by the Global Engine team.

“Once we could decide, ‘OK, this is the piston design we are all going to use, let’s go out and go shopping,’ we were able to volume bundle,” Coventry says. “We are buying pistons from a company called Dong Yang Piston and…it’s a significant savings.

“And there was a whole host of other suppliers. We’re buying our connecting rod and our camshafts from Japan. We’re buying our balance shafts from Metaldyne (Corp.) in Indiana.”

More than 80% of the parts to be used in the engines produced by GEMA will come from North American sources, although 50% of the parts purchased will come from Asian suppliers, many of which will have operations in the U.S.

“Overall, what we found is that many of those suppliers were interested in coming here to the U.S. or already had some presence here in the U.S.,” he says.

Coventry says it is possible DC will take a page from GEMA and re-source future engine components to take advantage of the lower cost.

“We’re trying to do that judiciously because you can take the world’s best supplier and turn them into the world’s worst supplier just by dumping all of your business on them,” he says. “So what we want to do is develop the partnership and to grow and nurture these suppliers.

“It does not mean we are abandoning our North American suppliers,” he adds.